Equity optimism highest since 2018

The successful trial of two COVID-19 vaccines plus the election of Joe Biden as US president-elect has led to the “most bullish” fund manager sentiment all year.

According to the latest Bank of America global fund manager survey, cash levels sank to 4.1% from 4.4% which was now below pre-COVID levels while equity optimism was the highest level since January 2018 with equity allocations by respondents rising 19 percentage points.

Equity allocations were at 46% in November and an allocation of 50% was classed as ‘extremely bullish’ by the organisation.

There had been a rotation in exposure to small caps, emerging markets and banks while they reduced exposure to staples, cash, bonds, Europe and healthcare.

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They were particularly optimistic on emerging markets which was the asset class named as most likely to be outperform in 2021 followed by the S&P 500. A net 36% of investors said they were overweight emerging markets, up 24% from the previous month.

Respondents expected a credible COVID-19 vaccine to be available in January 2021, up from February in the previous three surveys. However, the risk of a second wave remained the biggest tail risk, rising by seven percentage points from September, followed by the tech bubble.  

Michael Hartnett, chief investment strategist at Bank of America, said: “The most bullish fund manager survey of 2020 on the back of the vaccine, election, macro; November’s fund manager survey shows a big drop in cash, 20-year high in GDP expectations, big jump in equity , small cap and EM exposure; reopening rotation can continue in Q4 but we say ‘sell the vaccine’ in the coming weeks or months as we think we are close to ‘full bull’”.